Fed rate cut and what the banana zone means for crypto

Transcript

GM good morning welcome to the milk Road show The Daily crypto show that's as smooth as flipping the perfect pancake I'm your host Jay Hamilton today we're joined by Kyle rehead co-owner of milk Road and head of research in today's episode we're talking about the fed's decision to cut rates by 50 basis points yeah we'll be analyzing the Market's reaction The public's response is this bullish is this bearish lot of different opinions coming from both sides and what we expect coming for the rest of this year and for next year as the FED gave a lot of information drum po really broke down a lot of things around the economy and jobs and inflation and

where he sees the economy going and what that means for rates which obviously has a big impact on your bags now before we jump in if you hold some eth you might want to check out our friends over at kelp Dow get ready because your reward farming game is about to level up introducing gain powered by kelp your dgen cierge gain is an automated Vault launched by kelp that maximizes rewards for eth users it offers oneclick access to airdrops and points from leading l2s like Linea scroll car and more here's how it works head over to milkroom gain and spot airdrop gain get

a complete overview of how your assets are deployed and the rewards and points you you stand a game with just a few clicks deposit eth RS eth or liquid staking tokens into the smart Vault that's it the best part once you deposit you're issued liquid token AG eth enabling you to participate in defi on pendo Spectra lra splice and others gain is already live and you can go check it out for yourself today just head over to milro docomo welcome to the show exciting show today it's rate cut season baby yesterday we got the big news that the FED cut rates

50 basis points bit blah blah blah at this point everybody knows that what does it mean well my favorite tweet which I guess got to start off today's episode with was this one from Douglas bonapart he says pilot on my flight home just announced the Fed rate cuts at 50.5% everyone started cheering and the guy next to me said is going to buy a rental property in Florida we are so back I see you also have your yellow banana hat on Jay are you uh is that your bullish hat or did you need to do that I'm calling it man the banana Zone it's coming it's coming watch out you might miss it it's gonna happen it's G to be fast don't blink look this actually couldn't have gone I would say

any better do you want me to start breaking it down right now Jay or do you have something you want to I yeah I do I do so this actually couldn't have gone any better I think I didn't expect it to go this way I thought it was going to be 25 basis points probably most people thought if it went 50 it was because of panic and that would be actually nuke the market but it looks like drone Powell has literally done a beautifully soft Landing he's landing on a pillow right now and it is amazing but he's lowering 50% or 50 basis points and doing it in still a pretty healthy Market all around and so he's not doing it out of panic which is what most people expected he's doing it out of just he feels he's able to do this to support the labor market but not a big

concern so all in all quite a surprise I think everyone else who thought that it was going to be a 50 Bas point cut thought it was going to Nuke and going be bad and uh and the markets have have actually done quite well and based on his speech everything he said which we'll get into he's really nailing it I think so I'm I'm quite impressed before we jump into his speech and what he said about inflation and jobs and the economy can you just give us a bit of context about how Jerome Powell has to approach this speech and how the FED has to stick handle this yeah yeah it's um it's a tough position because so he's lowering 50 basis points right and if he's lowering 50 Bas points because it's out of panic then markets are going to

absolutely nuke and he obviously doesn't want that he doesn't want people to think that he's doing this at of panic because he actually believes that the markets are doing well but at the same time he can't come out and be like hey I think everything's all good we're great inflation's gone you know labor Market's perfect like we're cutting because we're just good to go like send it he can't do that because then people get too much confidence markets go through the roof and then everyone gets confident again starts spending and then all of a sudden inflation actually comes back and so like even though you could tell he believes the market is all good and to me the signal is bullish as he can't actually say that because he can't trigger a Cascade of bullishness he has to still make people believe like it's not bad H but it's not that good either

and so like he's got to thread the needle and it's so it's kind of funny to watch him and and listen to him on what he's saying cuz you can tell he wants to say things differently but he's just very very careful about what he's saying so it's a you got to really know what you're listening to when you hear him speak because he's saying things and probably means things very different I think well and that's why you listen to milk road because we will make sure that we we can translate what Jerome said into easy language for you and I'm sure if everybody listening you probably didn't have the time to go watch the fomc press release which I don't blame you you're not in it every day like we are but we are so let's get into what he said around the different areas that are

super important to us right now yeah so I mean the big news was basically he thinks the market is actually good and so he's cutting rates to sort of support what's going on not to out of like a reactionary thing not out of panic not because of recession none of that kind of stuff meaning GDP is good labor Market's still pretty strong inflation down and so the first thing was inflation you kept hearing him say there's two words he kept saying confidence and recalibrate okay confident in terms of he feels very confident that they're going to reach their goal of 2% inflation over time he didn't say it was going to be next month but he said he kept saying overtime but he said the word confidence so many times and so you know we're currently sitting at 2.5% in the US and he thinks

we'll get to 2% he didn't say when but over time and I think that that makes complete sense we've been saying inflation is not a problem for a long time which is why we've been in the bull Camp even though most people have been in the Bear Camp over the last little while and if you look at the chart we have up on the screen here this is averaging out all the inflation Cycles we've had since I think 19 1960 40 uh 1940 even better and we're basically doing the exact same thing as it's always been which is inflation spikes and then it just comes back down and sometimes there's some spikes in between that it's not a straight way down um same has happened this time but it looks like the same inflation cycle we always not always but almost always have when you average it out and so again we've

seen this chart we showed this chart a lot last year when inflation was really a concern and yeah we couldn't agree more we've been saying the inflation was was not an issue for a long time it sounds like Drome feels the same and is very confident in that and that's why he kept saying we're going to recalibrate our policy where he didn't say we don't care about inflation anymore of course they always do they their two mandates are keep inflation at their goal 2% and then keep maximum employment and so but now I think they're more focused on the unemployment side of things which then he jumped to and basically said again he feels that unemployment or the labor market is strong so he said he's confident in this he's confident in the labor market doesn't feel like we're going to jump and have tons of

unemployment I mean last month we were actually down versus the month previous we'll still probably go up a little bit I would assume but we're currently at what 4.2 but he just consistently said we think the labor market is strong we are not too concerned again he can't be like yeah we're all good everything's fine he had to kind of jump around about it but ultimately he repeated multiple times that he feels the labor market strong and cutting rates now is just a way to support the labor market but it's not doing it out of out of reactionary way that like we need this to um for the for the labor market to to be strong he says it already is and so this new policy this Rec calibration of policy just supports that and then the last part is about GDP is about growth in the

US which he said multiple times he thinks the US economy is strong and it is we've got a positive GDP we've consistently had that and so look he doesn't think it's the greatest Market of all time but he thinks that we are strong and things are all good and so again recalibrating going into rate Cuts is is all good here he sees no issues in doing that it's just a further support the economy further support the labor market but again nothing reactionary which is all the things you wanted to hear and is exactly a soft Landing the fact that he's able to do a 50 Bas point cut without recession without fear and panic pretty much tells you that this guy just did the soft landing and we have not done a 50 basis point cut without a recession or without Panic like covid

since we've only ever done it one time so this is the second time in history we've ever done this so it's actually pretty incredible what he's done here usually if we're cutting 50 it's because we are things are really B recession exactly and things are just not so bad bad and so that was just great to see yeah the thing that really stood out to me is I think it's so easy the whole world is still feeling a lot of the inflation effects right now because like your day-to-day prices are still high but we have to remember that that legs by the time it reaches like retail and like groceries and things like that it takes time and so it's very easy to think like inflation is still a big issue and if you talk to dayto day if you talk to a lot of like your friends

and family they might pump you up and I I even find that I'm like oh maybe is still a big issue but then you look at the numbers and you see that chart inflation is fine we're all good and I think we we couldn't be in a better place with where inflation is right now I mean I'm sure we could be in a better place but we're in a very very good Zone Kai let's look at uh how did the the market react to this let me first pull up the stock market equities you can see here green across the board yeah as I said yesterday you can't look at what the Market's doing in the moment when it's announced because it's a show if you looked the moment they a 50 base point it everything rocketed up then everything came back down and then he

started a speech and everything rocketed up again and then at the end of a speech everything came back down and then by the end of the night we were rocking again so it's like this is just the market you know volatility it is what it is it's the next day or the next couple days is where you really start to understand what the Market's doing so so far waking up the next day markets look really green I mean every single index in the US for equities whether it's the Russell the S&P the NASDAQ it's all up crypto is up everywhere and so it looks uh actually really good really bullish I mean we haven't seen this much green in quite some time and so that is really nice we talked yesterday about how we were at a bunch of support levels we've bounced off all them and so it looks

really good when I went on Twitter this morning everyone was so bullish we are so back is what everyone was saying as you started the show and I just want to do a bit of a reminder here like we aren't actually back yes it looks good and it feels good to finally have some come on it feels good to finally have some green it does and obviously a 50 Bas point cut soft Ling this is all really good news like I'm not bearish by any means but all I'm saying is we are not out of the weeds yet because we are still just in the range we've been in for seven months in fact some of them just got back into the range which is like terrible right it's not like we're out of the range and it's like off to Valhalla it's like we're still in the

range and so like I'll show you just some examples here so if you go back to sharing the screen you can see this one I showed yesterday which was the Bitcoin monthly so for those are listening it's just looking at the monthly price of Bitcoin we were sitting on support we've bounced off great we're still not out of this range that we're in here this sort of like descending channel here but we're still just in it and so like good we've bounced off and we bounced off very strong right off support this month which is is huge but again we're still in a Range this is Bitcoin again here that I'm showing and we're in this range in the very middle of it and look we can go all the way to the top of this range which would be 67,000 we have touched that one two three four five six seven

eight nine times in the last seven months in this range so like we could easily go up to 67 ,000 and come right back down and if we came back down to the bottom we'd be at 57 right or 56 depending on when we get back down there so like we are not out of the waters yet by any means but obviously this looks good but again like look at these two candles that we're seeing here like this was a really bullish uh week so far this is the weekly we're looking at now but like look what happened here in July we had two massive weekly candles same with here in may we had two massive weekly candles and it always ended up coming back down and actually getting below that range so like are we there yet are in banana Zone absolutely not when we

break out of this channel that's when the banana Zone exists and look we might just shoot right through I don't know but we are definitely not there yet and so like I wouldn't be getting too excited salana same thing we hit off that support as I said yesterday but we're still just in this just triangle there's we're not out of it we haven't broken out of it and so we still need some time to get through it for salana that would be about 151 152 so we're not super far away from that again about halfway but if we can break through that and close and like maybe retest it then okay that's a good signal eth same thing yeah we bounced off that line I've been showing for a while now and it looks good the last time we bounced off this line was in October 2023 and we went

from about, 1500 on eth all the way up to about 4,000 which was 165% gain in a matter of like a few months right about six months so like maybe that's where we're at it looks like it could be but again we're just off of support here so like I don't know that we are for sure now the one nice chart that I really like to look at here is Tesla now I've been bullish on Tesla for a while we wrote a pro report about it before Tesla's an interesting one because it's a Tech play so it's kind of like your NASDAQ and um you want to think like your Nvidia or even crypto they kind of all move in a similar way it's also in a downtrend except Tesla also has a bit of the old economy in it because it's also a car company and so

car companies and old economy companies do well when we're in lower rate environments uh and so you have sort of tech and this like low rate environment that does well for Tesla and look at Tesla it's just beaten through this like downtrend it's been in for since 20121 which is insane but it also has this inverse Head and Shoulders which if it breaks through this is actually nuts this happens a lot with inverse Head and Shoulders you take the bottom of this inverse Head and Shoulders take it to that trend line and that's how high it's going to go and pretty much the near term coinbase did this last year that would put Tesla which is currently sitting at 241 up at 74 I can show you the same chart pattern on coinbase from last year and it did exactly this it did the exact length

that it said up to like 260 or whatever that's what Tesla's about to do so Tesla is an absolute beast and it's just showing like hey if we're going to rate cut cycle like it's on and so anyway nice to see Tesla finally getting above that that's a good sign that risk on is coming H because if Tesla's pumping that means good things and again I can open up this here's all my all the crypto that I have that I'm watching here's all the uh stocks everything thing is just huge numbers right now it's a lot of green the other good thing that I didn't show yet is all the things that could have happened well happened well yesterday stocks up crypto up whatever Dixie so the dollar down great and then gold all-time highs and then the USD Yen which is the thing that everyone's been

scared of look at what it did I have no idea why but it absolutely skyrocketed higher meaning safer much better because if it went lower that was scary but the end carry trade which maybe we're just past it now but either way we went all the way up to 143 which it was like below 140 was the scary moment for that and so everything that could have went well yesterday it all happened oh I love it I love days like this this is this is the best this is the best but I appreciate your fresh dose of perspective that we are not in the banana Zone yet we are still in the range super important what else was amazing that came out of yesterday was the rest of the rate cuts that are coming let's just take a look at that so not only did Jerome Powell say that

we're going to cut 50 basis points right now he said that they are going to do two more Cuts this year of 25 basis points as their planed that would be November 7th and December 18th and then four more Cuts in 2025 followed by two more Cuts in 2026 for a total of eight rate Cuts still to come Kyle what does that mean yeah so Powell didn't necessarily say this this is just the expectations of all the FED officials when you look at the Dot Plot and so expecting at least 50 50 base points more uh lower this this year there's only two left and so either one of them will be a 50 or they'll be 25 and 25 and yeah as you said four next year and then

two and 26 look these will change all the time and so like I wouldn't expect this is exactly how it's going to play out but basically what they're saying is that's 2 and a half% lower than what they were yesterday right so we were at 5.25 I believe is what the FED fund rate was and so we're basically going down to around 2 would that be 2.5 and so that's that's a big difference right it's basically cutting what we're at in half now if you look at past Cycles we almost always continue to cut all the way so I don't know that it's going to happen but since like 2008 when we finally cut after the the the big crash the great financial crisis we went down to almost zero I think if you hover over at the bottom there we were like 0.25 or1 or

whatever yeah 0 2 and then again 2016 we started raising 2017 2018 this was covid so it's a bit different but we went down again to like 0.1 uh or zero I guess for a while and uh and now I don't think we go back to zero and Drome Powell said he doesn't know how low we'll go but I would assume we're going down to at least two two and a half two and a half is what they've said so probably it's going to be lower than that but we'll obviously have to just see what happens with the market how things go but I think what this means is look over the next 18 months as the FED has align has has basically told us we are going to ease and so rates are going to come down and what does that mean for us I mean

first it means that everyone right now who's been in a bit of a pinch because their mortgage or because you know people aren't hiring as much or like It's just tough when rates are high it's harder to get a car your car payments are more expensive your house is more expensive etc etc everything's just going to get a bit easier for everyone so like yes markets are going to do very well over the next 12 to 18 months we're going to hit that banana Zone I think we can talk about that in a second but just in general in life I think what this means is like the next 12 to 18 months finally after a tough last few years let's call it things are just going to get easier everyone's businesses are going to start doing better right you're going to start to get more sales

depending on what you do your costs are going to go down especially as inflation goes down too gas has head down much lower over the last little while as well and so like finally and again this doesn't happen today we're down 0. five but it's not a massive yet but over the next little while things are just going to consistently get easier and as a as a result of that the Market's going to get better and prices are going to go up so everyone's going to feel a bit richer for the next 12 to 18 months and that overall is just a good thing what's going to go up the most how's the market going to do like we don't know that for sure but we definitely know that when when we're in a rate cutting cycle over the next two years or however long we

end up doing it for life's going to get a bit easier for everyone I think that's just going to be really nice so I'm excited for that that sounds so nice that just sounds swell it's but it's true you can't underestimate like it's been tough it's been tough financially on individuals on businesses everybody has been feeling the pinch and yeah it's it's nice to have some relief finally uh Kai when we when we step back other than the great relief that is coming what else is could be the impact of this and future rate Cuts so there's a few things so as rates go lower not just do we have you know our expenses go lower so we can

buy more things which is just nice for the growth of the economy it's nice for of course Investments Etc but if you think of what happens here there is a lot a lot a lot of capital that is in treasuries right so they're just getting yield because it's been 5.25% that's pretty damn good why invest in the stock market hoping to get 8 n 10% which is the average for most when you can just have no risk and just put your dollars in a treasury at 5.25 right you're a couple percentages off what you might get as the average in the stock market and you basically have zero risk and so a lot of people just put their Capital there as rates go down to four or like four and a half and then four and then three and a half and then eventually two

and a half as they' said already they're going to go to well two and a half isn't that great because inflation is already two and we all know it's actually a little bit more than that and so like most people don't want to hold a treasury when it's at two and a half or two or even lower depending on how low we go and so at that point where does that Capital go there's trillions of dollars in treasuries right now and look not all of that moves some of that is there for a reason but a bunch of that moves to equities or into crypto or into gold or into whatever that may be and so again times are going to get easier for everyone in terms of our expenses but also Capital just has to move out of treasuries because the yield just doesn't make sense anymore so that's one

thing of why why we go risk on when we when we start to see rates lower the other thing that's interesting is when we have rates at you know 5.25% you don't really need the yield that you can get in crypto staking yield Isn't that cool anymore like getting your 3 four% on eth isn't that big of a deal when you can get 5.25% on your on your dollars and so what happens is as rates go down right more Capital gets interested in the yield you can get from other things right the yield you can get from let's say real estate buying real estate and then renting it out that's a yield right or buying eth and staking it buying soul and staking it Etc or using defi because you can get a lot of onchain revenues that provide real yields from things happening on chain

like Athena for example their yield comes from uh basically open interest right so the more leverage in the system the more yield is created the more if you hold their stable coin you can get yield it doesn't matter about rates and actually rates going lower means there's probably going to be more leverage in the system more open interest and so you'll probably get higher yields over on Athena maker same thing right maker gets its yield from people taking out leverage taking out loans against their eth or against their Bitcoin or whatever it is right and so those yields get higher and higher as real rates in the real world go down and so what happens here is more capital is probably going to come on chain because it's just the only place to get yield now again it depends on how low we go in treasuries

if we sit at 4% probably not much is going to move but when we get to two and a half two whatever that's when a lot comes in and that's kind of your tail end of the banana Zone because that's everyone especially the last movers like oh why am I holding my money in this bank account giving me 2% when I can go over here and get five six seven 8% right so that's all coming again it won't happen right away but slowly that's going to happen month over month over month and so again I just I paint this this is this is the banana Zone in action this is why the banana Zone happens as rates go down as more liquidity comes in they're looking for yield they're looking for returns and right now probably onchain is going to be the best spot for that as rates go

lower yeah on chain is the best spot for it you heard it right here K so I think my final question is what do you think as an investor how are you acting right now what are you watching over this coming week and where do you think we go for the rest of this year with zenica last week or two weeks ago we said there's sort of two check boxes we need to check here one was lowering rates make sure we got that under and that's a big green check this worked out much better than we thought 25 would have been great but it's the fact that we could do 50 and still be bullish is is huge so it's a big thick green check in that box the next box is the the election so we are I don't know a month and a half out from the election at this

point and markets still don't like uncertainty and so there's still a lot of uncertainty on what's happening with the US what's happening with Cala Harris is Trump going to get it like we still don't really know and I this more matters for I think the tail end of crypto probably for Bitcoin it doesn't really matter for eth for all the alts like I don't think we get altcoin season even though I mean alts have done quite well just today but I don't know that we get the altcoin season unless Trump really starts to run away with it but like when if Trump gets elected it's pretty confident like Gary genser is probably out and we have a whole new regime that comes in and sets good regulation I mean Trump's launching a D5 project in a token like insanity what's happening over in that world and then

it's like we don't know what happens with Cala Harris she's backtracked her thoughts around like taxing unrealized gains and all this stuff that she's done but a lot of things that markets don't love and so the the big green light is if one just the green check is election over I don't care who wins that's a good thing but for altcoin season and big banana Zone it's like Trump winning because then I think it's like finally un Unis swap turns on its fee switch right and like the lawsuit against ether right now for against Lio around calling eth Stak eth the security that goes away right all the things that are currently suppressing eth and ALT and crypto in general most of those go away now maybe Trump's lying and we don't know for sure but I'm

pretty confident that like it alleviates a lot of pressure and so like you remove that you remove the gravity basically that's holding it all down and like that is your alt season right there and so we're a month and a half away from that so again probably things do well over the next month and a half I would say coming up to that election I don't think they do super well but as I said yesterday they probably go higher from here then depending on what happens in the election that's the last green check we need and then it's basically just game on because we already know what the script is it's we need liquidity and rates are going to go lower as we've said for the next two years so it's it's very much game on and this chart you have up on the screen here of like part

two of The Bull Run is very much what happens post election in my opinion do you think we see volatility for the rest of September or do you think we get into October early uh it's a good question until we're out of the range I'm not overly bullish like I'm not I wouldn't be I don't use a lot of Leverage anyway but I would use leverage if we got out of that range I think it makes like it's a time that you would start to use it but I wouldn't use it now I think there's still very much a chance we could come back down to all these support levels that I shown at the start or in at yesterday we could easily go back to these so I think we'll definitely have volatility leading into the election because who knows what will happen I mean Trump almost got

assassinated again last weekend at the golf course so like who freaking knows in the next month and a half and so we really need November 5th to come and go and then we can finally I think just like take a deep breath exhale and just like let markets rip no we never take a deep breath and exhale we just uh we just keep on keep on going and keep on pushing and stressing and enjoying the ride uh Kai thanks so much for uh leading us through today's episode everybody listening in uh I want to know are you bullish right now are you feeling good as a result of this 50 basis point cut are you worried what are your fears let us know how you're feeling in the comments and then we can make sure we respond to those questions and help you understand and where we're

going from here because we always do our best for you guys thank you so much for listening and thanks for joining us again have a wicked awesome day as always if you liked today's episode please hit subscribe and make sure you follow us if you don't miss out on the next one there's also a link in the description to our free 5 minute daily newsletter where we simplify crypto for you well making you laugh and if you're willing to step up your crypto investing game we're going to also leave a link for milk Road Pro you get access to our portfolio where you can see exactly what we are buying this is your number one resource to help you invest successfully in crypto one final note this show is for educational purposes only and

nothing we say is financial advice investing in crypto or any asset is risky and you should never invest more than you can afford to lose thanks so much for listening in my friends have a wicked awesome day